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Uranium is big news right now.
There’s the story on the front pages of course – the one about Iran and its hopes for its own uranium enrichment programme.
And then there’s the story in the business sections. Uranium has just gone over the $100 a pound mark. Last week it was priced at $95 a pound – it‘s now selling for $113 an ounce, according to price provider TradeTech. That’s the largest jump since records began almost 40 years ago. Just five years ago uranium cost less than $10 a pound.
There’s no doubt that uranium’s had a great run and here at MoneyWeek, we’ve been backing it all the way. But how much longer can the good times last?
When a product sees a more than tenfold increase in price in less than five years, that tends to attract speculators. And uranium is no exception.
As Jim Mosoco writes in Newsweek, “the number of individuals and companies that have acquired uranium mining and exploration rights to new or abandoned claims with the US Bureau of Land Management has skyrocketed from just under 5,000 to more than 32,000 today.”
Meanwhile, new uranium minnows are coming to the market on what seems like a weekly basis. With those kinds of statistics, it’s no surprise that more than a few pundits are calling uranium fever the latest bubble market. But the supply and demand statistics are equally compelling.
Nuclear power is increasingly seen as the most viable near-term solution to our climate change problems, and opposition to further development is fading fast in most countries. As Mosoc continues: “With 440 civil reactors around the globe, annual demand for uranium ore runs about 175 million pounds, but global production is only about 100 million pounds.” There are more than 160 nuclear reactors being built or planned around the world. Yet last year, the US produced just two million pounds of the yellow metal, “enough to run about four of the nation’s 103 commercial nuclear reactors for a year.”
And there are still plenty of supply problems. Cameco, the world’s largest producer, won’t see its key Cigar Lake mine come on stream until at least 2010 – better than expected, but still a huge delay. More recently, flooding at Energy Resources of Australia’s huge Ranger mine has also hit supplies.
As Laurence Alexander of Jeffries & Co tells the Houston Chronicle: “The market’s psychology is peak cycle but we’re not yet at the peak of the pricing cycle. We’re still in the mode that things are going wrong before they’re going to go right.” He expects uranium supplies to remain tight until at least 2012. Meanwhile, ABN Amro reckons that peaks of around $140 a pound “will be consistently found between 2007 and 2010 as uranium miners battle to keep pace with demand”, reports The Australian.
It seems that the boom may have a way to run yet. But it’s important to play it the right way. You can find out more about uranium in our most recent piece on the sector, by clicking here: Three ways to play the uranium boom.
Oh, and before we move onto the markets, we just wanted to remind you to take a look at that email we sent out yesterday about MoneyWeek regular Tim Price’s new investment advisory service. In case you missed it, you can find out more about it here – just click on this link: Tim Price
Turning to the stock markets…
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A late rally saw London close on modest gains yesterday. The FTSE 100 gained 20 points to end the day at 6,417 and the broader indices were also higher. Miners, including Vedanta Resources, Rio Tinto and BHP Billiton, topped the FTSE leaderboard as metals prices surged. However, retailer J Sainsbury was the day’s biggest loser on reports that the Sainsbury family had blocked a fresh private equity bid for the company. For a full market report, see: London market close
Across the Channel, European shares closed at their highest level in six weeks as M&A activity continued to boost prices. The Paris CAC-40 closed 16 points higher, at 5,766. And in Frankfurt, the DAX-30 was 64 points higher, at 7,166.
Across the Atlantic, the Dow Jones industrials index managed its eighth consecutive day of gains, adding 4 points to end the day at 12,573. The tech-heavy Nasdaq closed 8 points higher, at 2,477. And the S&P 500 ended the day at 1,448, a 32-point gain.
In Asia, the Nikkei closed flat as machinery orders data disappointed investors. The index was just 5 points higher, at 17,670, today. Elsewhere, the Hang Seng closed down 34 points, at 20,313.
Crude oil was trading at $61.93 a barrel this morning, whilst Brent spot was over 1% higher, at $68.27.
Spot gold was last quoted at $676.70 and silver had fallen to $13.90/oz.
And in London this morning, the British Retail Consortium (BRC) announced that UK retail sales had risen by 3.9% in March, their fastest pace in 11 months, as Britons splashed out on clothes and household items. Helen Dickinson of survey sponsor KPMG said that the figures suggested ‘a continued level of resilience in the market’ despite recent interest rate hikes.
And our two recommended articles for today…
Eight reasons commodities beat stocks
– Investing in individual stocks can have its pitfalls, says Lee Lowell of the Smart Options report. For his top four reasons why investing in stocks can be unpredictable – and four reasons why commodities have the edge, read: Eight reasons commodities beat stocks
Why gold jumped when peace broke out
– When Iran announced the release of the captured British sailors last week, the gold price promptly jumped by $10. So what exactly does that say about its ‘safe haven’ status? asks Adrian Ash. To find out what’s really driving the gold price right now, click here: Why the gold price jumped when peace broke out